2025 (2) TMI 1096 - HC - GST

GST Orders for 2019-20 Set Aside for Lack of Consideration; Petitioner to Deposit 10% of Taxes in 4 Weeks

M/s. Tamil Selvi Enterprises, represented by its partner V. Dayalan Versus The State Tax Officer, The Deputy State Tax Officer-I, Chennai

The HC set aside the impugned orders related to the assessment year 2019-20 for a Civil Work Contractor under the GST Act 2017, due to non-application of ... Challenge to impugned order - non application of mind - violation of principles of natural justice - petitioner is ready and willing to pay 10% of the disputed tax and that they may be granted one final opportunity before the adjudicating authority to put forth their objections - HELD THAT:- The petitioner shall deposit 10% of the disputed taxes as admitted by the learned counsel for the petitioner and the respondent, within a period of four weeks from the date of receipt of a copy of this order. The impugned orders dated 24.08.2024 & 07.12.2024 are set aside - Petition disposed off. 1. ISSUES PRESENTED and CONSIDERED Whether the impugned assessment orders suffer from non-application of mind and are liable to be set aside. Whether discrepancies noted between various GST returns (GSTR-1, GSTR-3B, GSTR-2A, GSTR-7) justify the assessment and demand of disputed tax amounts. The legality and propriety of demanding full disputed tax amount without providing an opportunity for the petitioner to file objections or explanations. Whether the petitioner's offer to pay 10% of the disputed tax amount as a precondition for reconsideration of the assessment is acceptable and can be ordered by the Court. The procedural safeguards and directions necessary to ensure fair adjudication of disputed GST assessments. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of the Impugned Assessment Orders and Alleged Non-Application of Mind Legal Framework and Precedents: The GST law mandates that assessments must be made after due scrutiny and application of mind, ensuring that the taxpayer is given a reasonable opportunity to explain discrepancies. Precedents emphasize that non-application of mind renders assessment orders liable to be quashed or remanded for fresh consideration. Court's Interpretation and Reasoning: The Court observed that the impugned orders dated 24.08.2024 and 07.12.2024 were challenged on grounds of non-application of mind. The petitioner had filed returns and paid taxes, but discrepancies were noted by the assessing authority. The Court found that the orders did not adequately reflect a reasoned application of mind, especially since the petitioner was not given a proper opportunity to explain or object to the discrepancies. Key Evidence and Findings: The scrutiny revealed mismatches between outward supplies declared in various GST returns (notably between GSTR-1 and GSTR-7), leading to demand of disputed taxes. However, the petitioner had already paid a portion of the disputed amount and was prepared to pay a portion more, indicating willingness to comply subject to fair adjudication. Application of Law to Facts: The Court applied principles of natural justice and statutory requirements under GST law, holding that the impugned orders lacked proper application of mind and procedural fairness. Treatment of Competing Arguments: While the revenue argued for enforcement of assessment orders, the Court noted the petitioner's readiness to pay a portion of disputed tax and file objections, which militated against summary confirmation of the orders. Conclusion: The impugned orders were set aside for non-application of mind and procedural infirmity. Issue 2: Discrepancies Between GST Returns and Assessment of Disputed Taxes Legal Framework: GST returns such as GSTR-1 (outward supplies), GSTR-3B (summary return), GSTR-2A (auto-populated inward supplies), and GSTR-7 (TDS returns) must reconcile. Mismatches may trigger scrutiny and demand of tax shortfall under GST law. Court's Reasoning: The Court analyzed the detailed tables showing discrepancies, particularly between GSTR-7 and GSTR-1, where outward supplies declared in GSTR-7 were significantly higher than in GSTR-1, resulting in a tax difference of Rs. 317,473/- remaining unpaid. The petitioner admitted and paid this amount, disputing only the balance. Key Findings: The petitioner's admission and partial payment of disputed taxes indicated acknowledgment of some discrepancy but also showed willingness to resolve the matter. The Court noted that the assessing authority had not fully considered this aspect before passing the impugned orders. Application of Law to Facts: The Court held that while discrepancies justify scrutiny, the assessment must be based on proper verification and opportunity to explain, which was lacking. Competing Arguments: The revenue emphasized the mismatch as basis for full tax demand; the petitioner countered with partial payment and request for opportunity to explain. Conclusion: The Court directed that only 10% of the disputed tax be deposited upfront, with the rest subject to verification and adjudication after objections. Issue 3: Procedural Fairness and Opportunity to File Objections Legal Framework: Principles of natural justice and GST procedural rules require that a taxpayer be given a show cause notice and opportunity to file objections before finalizing assessment. Court's Reasoning: The Court noted that the impugned orders were effectively final assessments without prior opportunity for the petitioner to submit objections or supporting evidence. Such procedure violates natural justice. Key Evidence: The petitioner's counsel cited a recent judgment of the same Court where similar circumstances led to remand of the matter with directions to allow objections subject to payment of 10% disputed tax. Application of Law to Facts: The Court held that the impugned assessment orders should be treated as show cause notices, enabling the petitioner to file objections within four weeks. Competing Arguments: The revenue did not seriously oppose the petitioner's request for opportunity to file objections, indicating acceptance of procedural fairness. Conclusion: The Court ordered that the petitioner be allowed to file objections and that the assessing authority consider them after hearing. Issue 4: Payment of 10% of Disputed Taxes as Precondition for Reconsideration Legal Framework: Courts have discretion to require pre-deposit of a portion of disputed tax to balance interests of revenue and taxpayer, ensuring compliance while allowing adjudication. Court's Reasoning: The petitioner voluntarily offered to deposit 10% of the disputed tax amount as a condition precedent to reconsideration of the assessment. The Court found this a reasonable compromise to protect revenue interests while enabling fair hearing. Key Findings: The Court ordered that the petitioner deposit 10% of the disputed tax within four weeks, with adjustments for any amounts already paid or recovered. Application of Law to Facts: The Court balanced the need for revenue protection with procedural fairness, using the 10% deposit as a mechanism to facilitate adjudication without undue hardship. Competing Arguments: No serious objection was raised by the respondents to this condition. Conclusion: The Court directed payment of 10% disputed tax as a condition for setting aside impugned orders and proceeding with fresh adjudication. Issue 5: Directions for Compliance, Verification, and Consequences of Non-Compliance Legal Framework: Courts may impose timelines and conditions to ensure expeditious resolution of tax disputes and compliance with orders. Court's Reasoning: The Court laid down a detailed schedule for deposit of 10% disputed tax, verification of payments, intimation of balance amount, and filing of objections within specified time frames. Key Findings: The Court clarified that failure to comply with payment or filing objections within stipulated periods would result in restoration of the impugned assessment orders. Application of Law to Facts: These directions ensure procedural clarity and prevent undue delay, while safeguarding rights of both parties. Competing Arguments: The respondents did not oppose these procedural safeguards. Conclusion: The Court's directions provide a structured mechanism for resolution, balancing interests of revenue and taxpayer.